It’s about the supplier experience

Alan Day, Chairman and Founder of State of Flux

We have previously written about the importance of being a customer of choice, and how behaviour plays a big part in why a supplier would see you as a customer they would value more than others.

The term ‘customer of choice’ has been around for some time, and like most business concepts is subject to a range of definitions and different interpretations. For the avoidance of doubt, when we at State of Flux talk about customer of choice we are referring to ‘a customer that is given preferential treatment compared to others for reasons other than sales and revenue’. Customer of choice benefits are ‘a range of benefits given to preferred customers that are not contractual obligations’, for example: first refusal on innovations; more investment in the relationship; access to and retention of the best people; superior account management; prioritised supply during periods of shortage; and commitment (going the extra mile).

Recently I was reminding my children of the proverb ‘do to others as you would have them do to you’. Expressing this common ethical value dates back centuries to the term ka me, ka thee (do a good deed for another and the favour will be returned). Unfortunately this proverbial message or ‘golden rule’ denoting mutual cooperation in its positive sense, now often carries more negative connotations of back-scratching and cronyism. Even the term reciprocity is now more often associated with ‘trading’ of business sales and revenue, and is generally regarded as something to be avoided if possible. Indeed, in some regulated industries such as energy, financial services and the public sector, it is expressly forbidden.

However, this basic ethical value of ‘treat others as you would like others to treat you’ should still have a place in our business relationships today, especially when we aspire to be a customer of choice for our key suppliers.

Putting this ‘golden rule’ into a supplier relationship context, the concept describes behaving in a way that acknowledges relationships need to be two way, have an element of reciprocity and, over time, deliver the requirements of both parties if the partnership is to be sustainable. I recognise that some people, both within procurement and the wider business, have a fear of the word ‘partnership’, while suppliers will also use it in its loosest sense. But ultimately our aim is to have suppliers wanting to work with us, and wanting to give us early access to innovation, preferential pricing and the ‘A team’ (all the things we’ve seen SRM leaders enjoy). And the best way of getting suppliers wanting to work with us is to treat them with trust and respect.

So why in procurement are we often forgetting the ‘golden rule’ and its simple guiding principle?

At risk of stating the obvious, procurement organisations are busier than ever before. Just look at your organisation’s simple statistics like the number of spend categories or suppliers allocated to a single buyer, or the range of projects and stakeholders, and this tells you there is a lot to do in the ‘day job’. Then add in meeting prospective suppliers, stakeholder meetings, running RFIs, RFQs, RFPs and eAuctions, and don’t forget continuous improvement or process improvement projects.

Procurement has good reason to complain about being busy, but is that good reason to forget the simple guiding principles for a successful relationship? How would you react if your supplier didn’t return your calls or reply to your emails? Ignored your attempt to discuss improvement or innovation? Failed to give you feedback when requested to do so? Failed to do what they have promised to do? Had you working through the night or your holiday without a thank you? Cancelled an important meeting at the last minute or got up and left half way through?

Being sold to can be tiresome and over time it is easy to become cynical about supplier intentions. We would therefore coach suppliers to change behaviours as well. Indeed, having recently attended a conference of strategic account managers, I know that this shift from selling to creating value is high on their professional agenda.

When I worked at a major appliance manufacturer, we used to have a saying that ‘you never know who is going to walk in the door with the next big thing’ and because of that there was a focus on listening, hearing the supplier’s story and treating them well to get them to share these updates. Even if it amounted to nothing, we at least got a market update from the supplier.

Supplier experiences that shout ‘we don’t care’

These are a few examples of the types of behaviour that suppliers are often subjected to:

The CEOs of a supplier and their agent were visiting the CPO of a large retail chain. At the end of the meeting both were put into the service lift! If that wasn’t bad enough the man with the rubbish trolley also entered the lift, squashing each CEO on their respective sides of the lift.

A supplier CEO tried for over six months to arrange a meeting with the CPO of a large food producer. When the CEO finally got to sit down with the CPO and one of his team dialled in on a call, the CPO (who had been on his Blackberry) announced after 5 minutes he had an urgent requirement to deal with. He promptly got up and left, leaving the supplier CEO to finish the call with the random staff member and then see himself out. To add insult to injury, there was never any apology or even message from the CPO.

Another supplier CEO flew eight hours for a meeting with a major bank’s procurement representative only to receive a request for a change of date half an hour before the meeting. When the CEO explained that he was in the car from the airport heading towards them for the original meeting, the procurement representative grudgingly agreed to meet him, only then to keep him waiting an hour before coming down. Having been invited to lunch in what seemed like a consolatory gesture, the supplier CEO was then left with the bill without a thank you.

These examples highlight just some of the negative behavioural experiences that suppliers have to put up with (and I haven’t delved into the realm of unethical behaviour that some endure). I’m not saying suppliers are perfect, far from it, and I’m sure we can all come up with examples to highlight this. However it’s our own behaviours that we have the ability to change.

Call me old fashioned…

Call me old fashioned but isn’t this in its most basic form about common courtesy and respect? What I am saying is it is a two way street and if we want good behaviour from our suppliers then we need to take a serious look at how we behave, both at an individual and corporate level.

In our 2013 global research report into SRM, we identify six pillars for success. One of these pillars is called relationship development and culture. This looks at how organisations are developing the attributes of a successful relationship. Amongst these are openness and transparency, innovation, alignment, trust, collaboration and emotional intelligence. None of these attributes can be developed in isolation. They all require both parties to feel they have a vested interest in a relationship that is based on mutual respect.

Most organisations rightly put a large amount of effort into ensuring their customers get the best possible experience - why? It’s mostly about building loyalty, and getting them to buy, buy often, buy in higher quantities and keep coming back. In this age of increased supplier dependency where resources are becoming scarcer and access to innovation is a key differentiator, building supplier loyalty and the supplier experience should also be a consideration.

I don’t think we have to re-write the rule book here. But, we should revisit some basics:

Key to becoming a customer of choice is fostering an environment of trust between your organisation and your supplier. We have found three activities are useful building blocks to do this:

Measuring and monitoring both parties’ perception of the relationship using a 360 feedback diagnostic.

Implementing a ‘relationship charter’ to ensure both parties agree what behaviours are acceptable and how you would like to work together.

Conducting joint account planning on an annual basis.

From our 2013 SRM study results, we have seen that only 18% of organisations use a 360º feedback diagnostic to regularly measure the joint perception of the relationship (note: this is to measure the perception of relationship attributes on a one-to-one level and not to be confused with a voice of the supplier which looks at the top suppliers, what’s important to them and how your organisation ranks versus your competitors).

We recommend a 360ºfeedback process is run at least once a year. It should be used to help inform a joint account planning session and help both parties continuously improve the relationship.

Similar to a customer relationship charter we recommend that for your strategic suppliers there should be a supplier relationship charter in place. This is a document both parties agree to that outlines what behaviours are acceptable in the relationship, what standards both parties need to adhere to and how you would address challenging situations if and when they may arise.

Typically a supplier will undertake an annual account plan on you as a customer. While this activity will always occur, we encourage you to undertake annual joint account planning with your strategic suppliers. This should cover:

Key areas of focus for collaboration

Business profile of the relationship

Summary of governance model

Performance history and key risks

Key stakeholders

Assessment of strategic value to both parties

Key actions to develop the relationship / account

Key actions to develop joint value (including value release plans)

Training behaviour

Once you have the basic building blocks above in place, the next question is to ask how you ensure the behaviours your organisation displays towards suppliers reflect the experience you want your suppliers to have on a consistent basis.

In our SRM research we looked at what skills are necessary for good supplier relationship management and what training organisations have received.

What is interesting here is the behaviour based skills that are needed the most show the biggest gaps between demand and provision of training. We saw the same picture in 2012. The only topics we are over providing in are negotiation and commercial expertise. Every other SRM related skill is currently under addressed.

After seeing these results, we at State of Flux changed our approach to training. We now focus on the behaviours that are needed to ensure a positive supplier relationship. And, we ensure that behavioural skills are taught in context. So for example, rather than just train individuals on how to set a KPI, we are looking at what supplier behaviours you are trying to drive with that KPI and how that will help both buyer and supplier business continuously improve. Supplier management requires ‘IQ’ and ‘EQ’ in equal measures in order to take the lead in building strategic relationships. This is why our Inside the Account Manager’s Head training starts with an empathy map exercise.

It is key that as procurement we are trained to have the right conversation at the right time with the supplier. And when we have the conversation we have the behavioural flexibility needed to adapt our approach, build empathy with the supplier’s situation and treat others as we would like to be treated.

On behalf of some of the world’s leading organisations, State of Flux conducts voice of the supplier programmes, runs 360º feedback diagnostics, facilitates joint account planning and runs SRM training (including Inside the Account Manager’s Head training). Please contact us on +44 (0)2078 420 600 or email us at enquiries@stateofflux.co.uk to talk about these activities and how we can support your SRM programme.

Improved value, sustainable performance

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